SCI Engineered Materials, Inc 10-Q for FY2022 Q2

SCI Engineered Materials, Inc. (SCIA)

10-Q 2022-07-29 For: 2022-06-30

Added on April 11, 2026

About this 10-Q

SCI Engineered Materials, Inc filed this 10-Q on July 29, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).

Headline figures

Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $6.51M; up 229.9% from $1.97M a year earlier
Net income: $664.87K; up 447.0% from net income of $121.55K a year earlier
Diluted EPS: $0.15; up 400.0% from $0.03 a year earlier

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Ohio	31-1210318
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, without par value	SCIA	OTCQB


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒	Emerging growth company ☐


		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021	3

	Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	5

	Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	6

	Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited)	7

	Notes to Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	N/A

Item 4.	Controls and Procedures	18

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	N/A

Item 1A.	Risk Factors	N/A

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	N/A

Item 3.	Defaults Upon Senior Securities	N/A

Item 4.	Mine Safety Disclosures	N/A

Item 5.	Other Information	N/A

Item 6.	Exhibits	19

Signatures		20


	June 30,		December 31,
	2022		2021
	(UNAUDITED)
Current Assets
Cash	$	5,409,210	$	4,140,942
Accounts receivable
Trade, less allowance for doubtful accounts of $15,000		714,269		425,327
Tax - Employee Retention Credit		105,000		105,000
Other		—		1,250
Inventories, net		3,617,648		1,073,218
Prepaid expenses		46,052		678,357
Total current assets		9,892,179		6,424,094

Property and Equipment, at cost
Machinery and equipment		8,066,539		7,949,746
Furniture and fixtures		135,665		132,365
Leasehold improvements		596,867		596,867
Construction in progress		330,972		287,510
		9,130,043		8,966,488
Less accumulated depreciation		(6,994,759)		(6,809,850)
		2,135,284		2,156,638

Right of use asset, net		230,457		274,298
Deferred tax asset		531,720		663,820
Other assets		87,346		89,552
Total other assets		849,523		1,027,670

TOTAL ASSETS	$	12,876,986	$	9,608,402


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
	2022		2021		2022		2021
Revenue	$	6,505,005	$	1,972,049	$	11,831,437	$	4,994,359

Cost of revenue		5,127,337		1,409,495		9,459,668		3,628,769

Gross profit		1,377,668		562,554		2,371,769		1,365,590

General and administrative expense		423,401		283,708		796,589		571,589

Research and development expense		92,085		54,377		179,116		92,596

Marketing and sales expense		108,140		46,434		190,328		97,827

Income from operations		754,042		178,035		1,205,736		603,578

Gain on extinguishment of debt		—		—		—		(325,300)

Interest expense		5,769		9,014		12,262		16,652

Income before provision for income taxes		748,273		169,021		1,193,474		912,226

Provision for income taxes		83,400		47,473		144,200		138,093

Net income		664,873		121,548		1,049,274		774,133

Dividends on preferred stock		—		6,038		—		12,076

INCOME APPLICABLE TO COMMON STOCK	$	664,873	$	115,510	$	1,049,274	$	762,057

Earnings per share - basic and diluted (Note 7)

Income per common share
Basic	$	0.15	$	0.03	$	0.23	$	0.17
Diluted	$	0.15	$	0.03	$	0.23	$	0.17

Weighted average shares outstanding
Basic		4,514,492		4,497,903		4,512,396		4,488,913
Diluted		4,541,819		4,526,062		4,539,988		4,516,478


	Convertible				Additional
	Preferred Stock,		Common		Paid-In		Accumulated
	Series B		Stock		Capital		Deficit		Total
Balance 12/31/2020	$	514,438	$	10,530,669	$	2,246,501	$	(7,740,441)	$	5,551,167

Accretion of cumulative dividends		6,038		—		(6,038)		—		—

Stock based compensation expense (Note 4)		—		—		1,183		—		1,183

Common stock issued (Note 4)		—		20,705		—		—		20,705

Net income		—		—		—		652,585		652,585

Balance 3/31/2021	$	520,476	$	10,551,374	$	2,241,646	$	(7,087,856)	$	6,225,640

Accretion of cumulative dividends		6,038		—		(6,038)		—		—

Payment of cumulative dividends (Note 5)		(24,152)		—		—		—		(24,152)

Stock based compensation expense (Note 4)		—		—		1,182		—		1,182

Common stock issued (Note 4)		—		7,493		—		—		7,493

Net income		—		—		—		121,548		121,548

Balance 6/30/2021	$	502,362	$	10,558,867	$	2,236,790	$	(6,966,308)	$	6,331,711

Balance 12/31/2021	$	—	$	10,573,843	$	2,227,078	$	(6,061,617)	$	6,739,304

Stock based compensation expense (Note 4)		—		—		1,183		—		1,183

Common stock issued (Note 4)		—		22,116		—		—		22,116

Net income		—		—		—		384,401		384,401

Balance 3/31/2022	$	—	$	10,595,959	$	2,228,261	$	(5,677,216)	$	7,147,004

Stock based compensation expense (Note 4)		—		—		1,182		—		1,182

Common stock issued (Note 4)		—		7,491		—		—		7,491

Net income		—		—		—		664,873		664,873

Balance 6/30/2022	$	—	$	10,603,450	$	2,229,443	$	(5,012,343)	$	7,820,550


	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,049,274	$	774,133
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and accretion		203,944		230,689
Amortization of right of use asset		43,841		40,792
Amortization of patents		2,207		2,207
Stock based compensation		31,972		30,563
(Gain) loss on disposal of equipment		(5,166)		3,224
Deferred tax asset		132,100		131,002
Gain on extinguishment of debt		—		(325,300)
Inventory reserve		(16,855)		600
Changes in operating assets and liabilities:
Accounts receivable		(287,692)		(144,555)
Inventories		(2,527,575)		(3,066,009)
Prepaid expenses		632,305		(151,276)
Other assets		(2)		2,656
Accounts payable		180,425		286,866
Operating lease obligations		(47,736)		(43,565)
Accrued expenses and customer deposits		2,099,024		3,477,435
Net cash provided by operating activities		1,490,066		1,249,462

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of equipment		5,166		591
Purchases of property and equipment		(179,140)		(558,828)
Net cash used in investing activities		(173,974)		(558,237)

CASH FLOWS FROM FINANCING ACTIVITIES
Payment of cumulative dividends on preferred stock		—		(24,152)
Principal payments on finance lease obligations and notes payable		(47,824)		(87,422)
Net cash used in financing activities		(47,824)		(111,574)

NET INCREASE IN CASH		1,268,268		579,651

CASH - Beginning of period		4,140,942		2,917,551

CASH - End of period	$	5,409,210	$	3,497,202

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	4,826	$	5,895
Income taxes		10,863		2,778

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Increase in asset retirement obligation		3,450		3,450


		Weighted
		Average
	Stock Options	Exercise Price
Outstanding at January 1, 2021	76,037	$	1.03
Exercised	(34,733)		1.00
Outstanding at December 31, 2021	41,304	$	1.05
Outstanding at June 30, 2022	41,304	$	1.05
Options exercisable at December 31, 2021	27,418	$	0.95
Options exercisable at June 30, 2022	34,361	$	1.01


2022	$	56,443
2023		114,857
2024		102,550
Total minimum lease payments		273,850
Less debt discount		18,671
Total operating lease obligations	$	255,179


Operating cash outflows from operating leases	$	47,736
Weighted average remaining lease term		2.4	years
Weighted average discount rate		5.5	%


2022	$	52,650
2023		101,675
2024		49,859
Total minimum lease payments		204,184
Less amount representing interest		8,792
Present value of minimum lease payments		195,392
Less current portion		98,828
Finance lease obligations, net of current portion	$	96,564


	June 30, 2022		Dec. 31, 2021
Machinery and equipment	$	385,923	$	385,923
Less accumulated depreciation and amortization		85,080		65,783
Net book value	$	300,843	$	320,140


3(a)		Certificate of Second Amended and Restated Articles of Incorporation of Superconductive Components, Inc. (Incorporated by reference to Exhibit 3(a) to the Company’s initial Form 10-SB, filed on September 28, 2000)

3(b)		Restated Code of Regulations of Superconductive Components, Inc. (Incorporated by reference to Exhibit 3(b) to the Company’s initial Form 10-SB, filed on September 28, 2000)

3(c)		Amendment to Articles of Incorporation recording the change of the corporate name to SCI Engineered Materials, Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-QSB filed November 7, 2007).

4(a)		SCI Engineered Materials, Inc. 2011 Stock Incentive Plan (Incorporated by reference to the Company’s Definitive Proxy Statement for the 2011 Annual Meeting of Shareholders held on June 10, 2011, filed April 28, 2011).

4(b)		Superconductive Components, Inc. 2006 Stock Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for the 2006 Annual Meeting of Shareholders held on June 9, 2006, filed May 1, 2006).

10(a)		Description of Unsecured Promissory Note administered by the U.S. Small Business Administration for funds received April 24, 2020 (Incorporated by reference to the Company’s Current Report on Form 8-K, dated April 29, 2020).

14(a)		SCI Engineered Materials Code of Ethics for the Chief Executive Officer and Chief Financial Officer (Incorporated by reference to the Company’s Current Report via the Company’s website at www.sciengineeredmaterials.com).

31.1	*	Rule 13a-14(a) Certification of Principal Executive Officer.

31.2	*	Rule 13a-14(a) Certification of Principal Financial Officer.

32.1	*	Section 1350 Certification of Principal Executive Officer.

32.2	*	Section 1350 Certification of Principal Financial Officer.

99.1		Press Release dated July 29, 2022, entitled “SCI Engineered Materials, Inc., Reports 2022 Second Quarter and Year-to-date Results.”

101		The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets at June 30, 2022 and December 31, 2021 (ii) Statements of Income for the three and six months ended June 30, 2022 and 2021, (iii) Statement of Changes in Equity for the three and six months ended June 30, 2022 and 2021, (iv) Statements of Cash Flows for the six months ended June 30, 2022 and 2021, and (v) Notes to Financial Statements.


		SCI ENGINEERED MATERIALS, INC.

Date: July 29, 2022		/s/ Jeremiah R. Young
		Jeremiah R. Young, President, and Chief Executive Officer
		(Principal Executive Officer)

		/s/ Gerald S. Blaskie
		Gerald S. Blaskie, Vice President, and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)


	June 30,		December 31,
	2022		2021
	(unaudited)
Raw materials	$	1,759,561	$	440,759
Work-in-process		1,700,549		549,369
Finished goods		166,101		108,508
Inventory reserve		(8,563)		(25,418)
	$	3,617,648	$	1,073,218


Date: July 29, 2022	/s/ Jeremiah R. Young
	Jeremiah R. Young
	President and Chief Executive Officer
	(Principal Executive Officer)


Date: July 29, 2022	/s/ Gerald S. Blaskie
	Gerald S. Blaskie
	Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting
	Officer)


	/s/ Jeremiah R. Young
	Jeremiah R. Young
	President and Chief Executive Officer of
	SCI Engineered Materials, Inc.
	(Principal Executive Officer)
	July 29, 2022